Revenue of Chengda Group (01568 HK) rose 8.2 per cent year-on-year to HK $5.39 billion in 2018. Net profit for shareholders fell 9.5 per cent year-on-year to HK $381 million. The worse-than-expected results were mainly due to lower-than-expected revenue from Chinese mainland's interior decoration engineering business and a higher-than-expected increase in administrative costs. As of December 31, 2018, the total contract value and remaining project value were HK $7.745 billion and HK $3.553 billion, respectively.

Revenue from interior decoration engineering was flat at HK $4.205 billion in 2018. We believe that the outlook for the Hong Kong market is turning prudent and growth will slow down, while the Macao market can benefit from the construction of new casinos and the renovation of old casinos. We expect interior decoration business revenue to grow at an average compound annual growth rate of 3.5% from 2018 to 2021. In addition, we expect the income from the alteration and addition and construction business to grow at an average annual compound growth rate of 19.9% from 2018 to 2021.

Our forecasts for earnings per share from 2019 to 2021 are HK $0.213, HK $0.231 and HK $0.245. Based on the worse-than-expected results in 2018, we lowered our target price to HK $4.00, which is equivalent to the price-to-earnings ratio of 2019, 2020, and 2021, which is 16.3 times the price-to-earnings ratio of 18.8, 17.3, and 2020. As the fundamentals are still strong, the investment rating of "collection" is maintained.